The Cutting Edge | SPECIAL REPORT: ELECTRONIC ENTERTAINMENT

Seduced by the Game

Consoles Could Redefine Home Entertainment

Two new video game consoles set for release in the next 18 months promise to redefine the $7.1-billion interactive entertainment industry, while potentially changing the way consumers view their home entertainment systems.

The release of Sony's PlayStation 2 and Sega's Dreamcast has touched off a debate about whether these systems represent the long-awaited convergence of televisions and computers. With processing power that rivals Pentium computers, the new consoles not only provide more realistic graphics, but also offer such functions as e-mail, DVD and the ability to surf the Web.

"Does the consumer think in terms of having one multi-function device that does everything? Recent history of consumer electronics industry suggests not," said Ted Pine, president of InfoTech, a Woodstock, Vt.-based market research firm. "The next battle of the next decade will play out between the all-singing, all-dancing, multi-function device view of the world versus the rifle-shot, targeted view of the world."

Sony's PlayStation has 56% of the U.S. console market, with Nintendo holding a 40% share and Sega 5%, according to the San Diego-based market research firm DFC Intelligence. (The figures don't total 100% because of rounding.)

Nintendo is expected to make an announcement about its next console this week at the video game industry's largest trade show, the Electronic Entertainment Expo, or E3, in Los Angeles. There Microsoft Corp. plans to unveil a beta version of its game development tools for Windows that it says will create graphics matching those shown on the new consoles.

"If you look at whatever Dreamcast or PlayStation 2 do, they will take advantage of capabilities that PC makers have been building into PCs for five years," said Kevin Bachus, a group product manager at Microsoft.

Bachus said TVs have limited display technology when compared with PCs and provide poorer resolution for the new consoles' beefed-up graphics capabilities.

PC software sales made up about 18% of the interactive software market in 1997, with console games claiming about 48% of sales that year, according to Forrester Research, a Boston-based market research firm. But these PC software sales are expected to increase dramatically as the price of personal computers falls and more players flock to online game centers.

Sega's Dreamcast, set to debut in the U.S. on Sept. 9 for $199, features a modem that will allow players to gather in a community, exchange e-mail and surf the Web. One million units have been sold in Japan since its introduction there in November.

Because they run on Windows CE, Dreamcast games can be written using Windows development tools. This has made the machine popular with developers, who expect to create 10 games for its launch in the U.S., with 20 to 30 games available by Christmas.

Sony's PlayStation 2, expected to be on sale in the U.S. next year, runs on a processor dubbed the "Emotion Engine" that Sony built with Toshiba Corp. The machine will store data on DVD-ROM disks. Sony has yet to decide whether it will make the machine capable of playing DVD movies.

The console will incorporate ports that will allow users to connect a variety of devices to the unit and will include slots for connecting peripherals such as modems, network cards, hard drives and flash memory to laptop computers.

It will be backward compatible, giving Sony a library of more than 3,000 budget-priced games to occupy gamers before new titles arrive. The system is a follow-up to PlayStation, the world's most successful consumer-electronics product, which has shipped 50 million units.

Analysts expect that the brand recognition the current PlayStation enjoys and Sony's expertise in developing electronics systems will give PlayStation 2 an edge.

"PlayStation 2 will be the centerpiece of your home entertainment system," said Kazuo "Kaz" Hirai, president and chief operating officer of Sony Computer Entertainment of America.

For both Sega and Sony, the introduction of the powerful new systems will not only change the way games are made, it will also boost the cost of game development. Those costs may be passed on to consumers.

"Most titles will still come in around $40," said David Cole, an interactive entertainment analyst at DFC Intelligence, "although we might see more titles in the $50 range."

Game developers will be able to take advantage of both consoles' processors to simulate weather during a football game and to make a character's hair blow in the wind. But that realism comes at a cost.

Because it relies on DVD-ROM storage technology, PlayStation 2 game development promises to be a pricey proposition, industry experts say. Indeed, it took 40 programmers at Costa Mesa-based development house Square EA four months to create a two-minute sequence of the game Final Fantasy VIII.